Sept 4 (Reuters) - Dominion Resource’s Virginia Power unit said on Wednesday it won the U.S. federal auction to lease and develop a wind farm on nearly 112,800 acres off the coast of Virginia.

Dominion said it bid $1.6 million to win the lease auction after six rounds. Only two of eight eligible firms participated in the bidding, Dominion said.

“Offshore wind has the potential to provide the largest, scalable renewable resource for Virginia if it can be achieved at reasonable cost to customers,” said Mary C. Doswell, Dominion’s senior vice president for alternative energy solutions, in a statement.

Wednesday’s auction was the second held by the U.S. Department of Interior’s Bureau of Ocean Energy Management (BOEM). The agency auctioned an area offshore Rhode Island and Massachusetts in July.

BOEM said the Virginia area is 23.5 nautical miles (43.5 km) from the Virginia Beach coastline and has the potential to support more than 2,000 megawatts of wind generation - enough electricity to power about 700,000 homes.

“We will now proceed with the BOEM timetable for development of the commercial wind energy area while advancing our research proposal and looking for ways to lower the cost of bringing offshore wind generation to customers,” Doswell said.

A team including Dominion was one of seven projects selected to receive $4 million each in federal matching funds to undertake initial engineering, design, and permitting for a demonstration facility of two, 6-megawatt turbines with a goal of finding ways to lower costs of offshore wind, the company said.

The U.S. Energy Department will choose up to three of the projects to move forward with an operating deadline of late 2017.